Qantas ready for Virgin in domestic dogfight

Qantas CEO Alan Joyce (under umbrella) with Qantas pilots captain David Evans (left) and Richard de Crespigny inspect the Qantas Airbus A380 that lost an engine in a mid-air blast in November 2010. The jet was formally handed back to the airline after extensive repairs at Changi International Airport in Singapore on Saturday. Photo: Reuters

Michael Smith SINGAPORE

Qantas Airways chief executive Alan Joyce has vowed to defend the airline’s grip on Australia’s domestic market as a capacity war looms with Virgin Australia which is expected to bring a sharp fall in prices.

Mr Joyce said he was willing to add as many additional flights as necessary to protect Qantas’s “line in the sand” of a 65 per cent market share of the domestic market.

“There is a lot of capacity being added to the market by Virgin and by Tiger. We are entitled to defend our position,” Mr Joyce told TheAustralian Financial Review.

“We think the optimal position for us from a profit point of view is 65 per cent and we will allow whatever capacity we have to add to protect that.”

Domestic capacity is expected to increase by 21 per cent by September compared with a year earlier, based on the number of seats for sale in booking systems for the half-year ahead. Virgin is offering more flights as part of a campaign to win more corporate customers, while smaller rival Tiger is also bulking up its operations.

It is understood Qantas is planning to add a significant amount of ­capacity from July. This could mean increases of up to 13 per cent in capacity, depending on how many additional flights Virgin puts on.

Industry sources say Virgin is planning capacity increases of up to 17 to 18 per cent, although this figure has been disputed by another airline source.

“Our capacity plan is driven through a continued focus on yield and margin improvement opportunities on individual sectors, as opposed to an overall group market share goal,” a Virgin spokeswoman said yesterday.

Earlier this month Virgin reported a 16.2 per cent rise in domestic capacity growth in February, although the figures were distorted in the same month last year when natural disasters resulted in cancellations and ­frequencies were scaled back.

The forecast of a 21 per cent rise, contained in a Royal Bank of Scotland report last week and based on data from the Centre for Asia-Pacific Aviation, was verified by The Australian Financial Review using industry sources with access to the same booking systems.

Analysts said yields, or average ticket prices, would fall as increased competition meant there were more seats in the market to sell.

Battling rising fuel prices, a weak global economy and a flagging international mainline business, Qantas announced plans in February to cut costs by reviewing its catering and heavy maintenance facilities, reconfiguring aircraft and cutting some international routes.

Mr Joyce said he expected to announce the result of a review of the airline’s heavy maintenance facilities by the second week of May.

The airline is still in talks with the Victorian and Queensland governments about the plan, which is expected to result in the airline closing at least one of the three facilities. Mr Joyce said the airline was not seeking financial assistance from the ­government.

He would not say when the company expected to resume dividend payments, saying the board would look at the issue when there was more certainty about the economic cycle.